Alfin Fragrances Inc. Harvard Case Solution & Analysis

INTRODUCTION

Alfin Fragrance Inc is located in the US and is operating in the industry of marketing where it markets French Perfumes and Cosmetics. The company is considering introducing glycol as an anti aging cream. The company is expected to generate an annual sale of $30 million from its new product in the upcoming year 1987. Alfin is considering to choose either debt financing or go for external financing in terms of issuing equity.

Alfin was founded in the year 1976 and its products are manufactured in France, Italy and Switzerland. By the year 1985, Company’s operation has expanded into 31 countries and these operations are being run through the distributors.

Other than the perfumes, Alfin is also manufacturing Irma Shorell, and distributing it worldwide. Irma Shorell is a skin care product. The management of the company is experienced and this management has acquired experiences from the other companies operating in the cosmetic industry.

PROBLEMS STATEMENT:

The problem that is faced by the Alfin Fragrances, Inc, is the growth of the company if the company launches its new cosmetic product glycol that is considered as miraculous in terms of anti aging cream. The company is considering to choose between the debt financing and equity financing whichever would be beneficial for the company’s future growth. Further, the company is also considering to manage its working capital efficiently as currently, the company is facing problem in order to manage its working capital.

ANALYSIS:

In order to analyze its financing needs and to manage its working capital efficiently there is the need to identify the company’s strengths, weakness, opportunity and threats.

SWOT ANALYSIS

Strengths:

The success of Alfin is its presence in 31 countries through the strong distribution channel. Its management team is highly qualified and having years of experiences in the Cosmetic industry. Alfin also had the ownership rights in the French and Italian fragrance market with various designer outlets around the world and also owns its manufacturing and distributions.

Weaknesses:

The weak point of Alfin is its marketing and advertising as Alfin is marketing its products relatively weaker compared to its rivals. Alfin sold its products to prestigious departments and specialty stores using the experts that demonstrates its products. Alfin uses its traditional approach for the marketing mix. The working capital management of the company is weak.

Opportunities

Alfin is currently operating in the large market where future diversification is available. It has the opportunity to create brand loyalty through direct sales and mass advertising. The industry environment is positive in which Alfin is currently operating. The Cosmetic Industry has the potential to grow further and it is because of the fact that the demand of the cosmetic products is only going to increase.

Threats

Alfin sales have reduced due to the reason that the company has managed to earn revenue from its two products and there is a threat of substitute product if competitors seeks it. The lower level of concentration on advertising is also the threat for the Alfin that would reduce its sales as Alfin’s product would be less popular compared to the competitors. The market growth is low which would also create the problems if Alfin won’t seek for the solution.

RATIO ANALYSIS:

The table 1 shows that in the year 1984 and 1985 the liquidity position and solvency position of Alfin decrease. It was due to the reason that the liability of Alfin had increased and its liquid assets such as cash had decreased in the year 1984 to 1985.

On the other hand, profitability ratios are showing positive trends with respect to the increase in sales and an increase in operating profit margins. That shows that even when the liability increased Alfin was able to secure profits from its sales.

Table 1:

RATIOS

1984

1985

Current Ratio

                    4.56

                    3.49

Quick Ratio

                    5.51

                    4.47

Cash to current asset

2.79%

1.40%

Receivable Turnover Days

                 38.40

                 59.64

Payable Turnover Days

              104.65

              184.01

Total Asset Turnover Times

                    1.13

                    0.87

Fixed Assets Turnover Times

                 10.10

                    3.44

Operating Profit to Sales Ratio

31.24%

34.02%

Gross Profit Margin Ratio

72.88%

74.97%

Net Profit margin to Sales Ratio

18.69%

20.09%

Return on total equity

28.74%

25.18%

Return on owner equity

54.59%

59.92%

GLYCEL’S LIFE CYCLE ESTIMATIONS

On the basis of the given assumptions in the case regarding the Glycel, the life cycle of glycol could be estimated. It can be estimated that, at the end of the last quarter of 1986 the sales of Glycel would attain the peak position. It would mature in the year 1987 as competitors would seek this Alfin’s product growth and would introduce their own substitute product that would reduce the market share of the Glycel.................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

This is primarily an exercise in quantitative methods, financial forecasting and common equity value, this case also presents issues relating to decision-making and to anticipate and handle ethical issues. In February 1986, Alfin, importer and marketer of cosmetics, cream presented with specific healing properties intended to reduce wrinkles. The product is considered as a major breakthrough, as over-the-counter treatment and has huge sales potential. Students should assess funding needs Alfin from this growth, to decide whether these needs should be financed by debt or equity, and determine the value of its common stock.
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by Casey S. Opitz, Robert F. Bruner Source: Darden School of Business 17 pages. Publication Date: April 1, 1989. Prod. #: UV0211-PDF-ENG

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